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31 March 2021 Supervision
Persoon die geld pint bij een geldmaat

A new DNB study concludes that cash still plays an essential role in society. The cash infrastructure, however, is under pressure, which could have negative consequences for the accessibility and acceptance of cash as a means of payment. Why is cash important?

The exchangeability of cash is crucial for public confidence

The exchangeability of private money (non-cash, created and issued by banks) and public money (cash, issued by central banks) is crucial for public confidence in the monetary system. Without cash, citizens can no longer withdraw money from their bank accounts without transferring it to another account. Cash is the only way for people to carry money without being dependent on a bank. Cash is legal tender and it can be used to make payments without the involvement of third parties.

Cash remains an important means of payment

The use of cash at brick-and-mortar retailers has recently dropped to 21% of all transactions. Because of its specific characteristics, however, cash remains an important means of payment for many, and for some it is even the only means to make payments independently. Another useful quality of cash is that it is impossible to spend more of it than you carry, which helps with budgeting and avoiding debts. It is therefore crucial that the decreasing use of cash at points of sale does not lead to lower acceptance rates by retailers and government organisations. Until recently, the downward trend of cash use was mainly a result of individual choices, but since the start of the pandemic cash payments have been increasingly discouraged.

Cash helps in emergency situations

In the event of long-term ATM failures or cyberattacks, it must also be possible to pay for essential goods and services. DNB’s analysis shows that cash is suitable to fulfill this back-up function, and that banks should therefore continue to operate a sufficient number of ATMs. This benefits the resilience of the payment system as a whole.

Want to learn more?

Click here to read Jurgen Spaanderman’s contribution to DNB’s Occasional Study series, about the role and future of cash.